Opposition To Treasury's Blueprint Gains Steam
Tuesday, April 1, 2008
Senior Treasury officials identified three immediate targets yesterday for their plan to overhaul the nation's financial regulatory structure, including streamlining the approval process for securities that contributed to the crisis now roiling Wall Street. But their hopes for a few quick changes are running into mounting opposition from interest groups and officials elsewhere in the Bush administration.
In formally releasing the blueprint yesterday, Treasury Secretary Henry M. Paulson Jr. said he also plans to ask Congress this year to set up a new agency to oversee mortgage lending and take action to enhance his department's role as the chief regulator of financial markets.
The Treasury's initiatives seek to sweep away the current patchwork of regulation over the coming decade in favor of three more powerful agencies to oversee banking, market stability, and consumer and investor protection. The plan's authors have argued that such changes are needed because government oversight has not kept up with the pace of financial innovation.
Paulson acknowledged that the recommendations would not prevent future crises but said that they would make government more nimble in addressing them. "We should and can have a structure that is designed for the world we live in," he said in a speech at the Treasury. "Few, if any, will defend our current balkanized system."
Critics said the Treasury's plan is almost too big to succeed. Longtime Washington institutions would undergo wholesale changes or shut down altogether. Few leaders of these agencies -- and the associations that work with them -- welcomed such radical transformation.
Interest groups took particular issue with the proposal to create a single regulator to replace the many agencies that now oversee various types of financial firms. Banks could lose their latitude to pick and choose among state and federal regulators. Thrifts could be forced to become banks, which are more regulated.
"Dismantling the thrift charter and crippling state banking charters will weaken banking in America," said Edward Yingling, president of the American Bankers Association. "We must be careful not to let regulatory boxes substitute for real improvement."
Credit union lobbyists also oppose the plan because it could eliminate their unique niche in the banking system and impose new regulations. Dan Mica, chief executive of the Credit Union National Association, said his group was "astonished and angered" by the proposal to phase out the National Credit Union Administration. The Treasury's proposal makes "no sense" for consumers, who would "pay more and get less in return," he said.
Many top federal officials, including some who are normally allies of Paulson, said they were disturbed to learn that the Treasury was proposing to strip their agencies of power. Several of them said they did not see any of the 218-page document until the executive summary was published by the media Friday night.
Sheila Bair, chairman of the Federal Deposit Insurance Corp., expressed concern about the Treasury's idea to take away her agency's oversight of state-run chartered banks, which would be folded into a new banking regulator.
"The FDIC has been a highly successful model for 75 years," she said in a statement. "During this time, no one has lost a single penny of insured deposits and public confidence in our banking system has remained high. Any long-term structural changes to the financial regulatory framework must be carefully weighed against the FDIC's strong record and the fact that it serves as a model for developing countries around the world."
While many agencies would lose their oversight of the markets, the Treasury would enhance its status as the financial market's top regulatory general. Paulson said he would immediately push to include all financial regulators in the President's Working Group on Financial Markets, a committee that he chairs.